TaxTMI 
TaxTMI 
2017 (6) TMI 335
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....peal) overlooked the judicial pronouncements mentioned before him. It was also pleaded that reworking the disallowance towards administrative expenses of Rs. 50,000/- on ad-hoc basis was merely on presumptive basis. It was contended that the Ld. Commissioner of Income Tax (Appeal) as well as the ld. Assessing Officer has mentioned with respect to long term capital gain, whereas, no such LTCG was earned by the assessee. Our attention was invited to para 4.3.5 of the impugned order. Reliance was placed upon the decision in the case of M/s Trade Apartment Ltd. (ITA No.1277/Kol/2011) order dated 30/03/2012, the decision from Hon'ble Bombay High Court in the case of HDFC (283 ITR 529 (Bom.). It was explained that the investment increased due to amalgamation for which our attention was invited at page-7 (schedule of investment). Reliance was placed upon the decision in M/s Hybrid Properties Ltd. vs ACIT (ITA No.4740/Mum/2011) order dated 04/03/2015. It was pleaded that the exempt income is Rs. 58,517/-, whereas, disallowance was made of Rs. 2,49,320/-, therefore, at best, the disallowance can be made at Rs. 28,815/-. On the other hand, the Ld. DR, Shri Airiju Jai Karan, defended the ....
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....01/04/1962. For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. By virtue of the Finance Act, 2002, the following proviso was inserted in section 14A and was deemed to have been inserted with effect from 11/05/2001:- "Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001." As a result of the insertion of the said proviso, Section 14A was as follows:- "Expenditure incurred in relation to income not includible in total income. 14A. For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Provided that nothing contained in this section sha....
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....ng Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001." 2.6. By Notification No.45/2008 dated 24/03/2008, the Central Board of Direct Taxes (CBDT), in exercise of its powers under section 295 of the said Act read with subsection (2) of section 14A of the said Act, made the "Incometax (Fifth Amendment) Rules, 2008" to further amend the said Rules (i.e., the Income-tax Rules, 1962) by introducing Rule 8D therein. Clause 1(2) of the Income-tax (Fifth Amendment) Rules, 2008 clearly stipulated that the rules would come into force from the date of publication in the Official Gazette. The said Rule 8D is as under:- "Method for determining amount of expenditure in relation to income not includible in total income. 8D.(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure....
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.... expenditure incurred in respect of that activity was not deductible. The Supreme Court repelled this contention in the following manner:- "This contention proceeds on the basis that only expenditure incurred in respect of a business activity giving rise to income, profit or gains taxable under the Act can be given deduction to and not otherwise. We see no basis for this contention. To find out whether the deduction claimed is permissible under the Act or not, all that we have to do is to examine the relevant provisions of the Act. Equitable considerations are wholly out of place in construing the provisions of a taxing statute. We have to take the provisions of the statute as they stand. If the amount claimed is permissible under the Act then the same has to be deducted from the gross profit. If it is not permissible under the Act, it has to be rejected. As mentioned earlier, it is not disputed that the cultivation of sugar-cane and the manufacture of sugar constituted one single and indivisible business. Section 10(2) says that profits under section 10(1) in respect of a business should be computed after deducting the allowances mentioned therein. One of the allowances allowed....
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....pect of the said business was deductible and, in such a case, the principle of apportionment of the expenditure relating to the non-taxable income did not apply. However, where the business was divisible, the principle of apportionment of the expenditure was applicable and the expenditure apportioned to the 'exempt' income or income not exigible to tax, was not allowable as a deduction. 2.10. The object behind the insertion of section 14A in the said Act is apparent from the Memorandum explaining the provisions of the Finance Bill 2001 which is to the following effect:- "Certain incomes are not includable while computing the total income as these are exempt under various provisions of the Act. There have been cases where deductions have been claimed in respect of such exempt income. This in effect means that the tax incentive given by way of exemptions to certain categories of income is being used to reduce also the tax payable on the nonexempt income by debiting the expenses incurred to earn the exempt income against taxable income. This is against the basic principles of taxation whereby only the net income, i.e., gross income minus the expenditure is taxed. On the same ana....
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....the related expenditure is outside the ambit of the applicability of section 14A.." 2.12. The Supreme Court also clearly held that in the case of an income like dividend income which does not form part of the total income, any expenditure/deduction relatable to such (exempt or non-taxable) income, even if it is of the nature specified in sections 15 to 59 of the said Act, cannot be allowed against any other income which is includable in the total income. The exact words used by the Supreme Court are as under:- "Further, section 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. Sections 15 to 59 lay down the rules for computing income for the purpose of chargeability to tax under those heads. Sections 15 to 59 quantify the total income chargeable to tax. The permissible deductions enumerated in sections 15 to 59 are now to be allowed only with reference to income which is brought under one of the above heads and is chargeable to tax. If an income like dividend income is not a part of the total income, the expenditure/deduction though of the nature specified in sections 15 to 59 but....
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....sion, are used in the expansive sense. The Supreme Court further observed as under:- "49. The expression "in relation to" (so also "pertaining to"), is a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context..." "... In this connection reference may be made to 76 Corpus Juris Secundum at pages 620 and 621 where it is stated that the term "relate" is also defined as meaning to bring into association or connection with. It has been clearly mentioned that " relating to" has been held to be equivalent to or synonymous with as to "concerning with" and "pertaining to". The expression "pertaining to" is an expression of expansion and not of contraction." (emphasis supplied) 2.16. Hon'ble Punjab & Haryana High Court in the case of CIT-II v. Hero Cycles Ltd., decided on 4/11/2009, observed that:- "Disallowance under Section 14A requires finding of incurring expenditure where it is found that for earning exempted income no expenditure has been incurred, disallowance under Section 14A cannot stand." 2.17. We are of the view that....
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....ction (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. 2.19. As we have already noticed, sub-section (2) of Section 14A of the said Act refers to th....
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.... amount of expenditure by way of interest [other than the amount of interest included in clause (i)] incurred during the previous year in the ratio of the average value of investment, income from which does not or shall not form part of the total income, to the average of the total assets of the assessee. (iii) The third component is an artificial figure - one half percent of the average value of the investment, income from which does not or shall not form part of the total income, as appearing in the balance sheets of the assessee, on the first day and the last day of the previous year. It is the aggregate of these three components which would constitute the expenditure in relation to exempt income and it is this amount of expenditure which would be disallowed under Section 14A of the said Act. It is, therefore, clear that in terms of the said Rule, the amount of expenditure in relation to exempt income has two aspects - (a) direct and (b) indirect. The direct expenditure is straightaway taken into account by virtue of clause (i) of sub-rule (2) of Rule 8D. The indirect expenditure, where it is by way of interest, is computed through the principle of apportionment, as indicated....
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....onwards. However, sub-section (2) of Section 14A remained an empty shell until the introduction of Rule 8D on 24/03/2008 which gave content to the expression "such method as may be prescribed" appearing in Section 14A(2) of the said Act. Thus, it is clear that, in effect, the provisions of subsections (2) and (3) of Section 14A would be workable only with effect from the date of introduction of Rule 8D. This is so because prior to that date, there was no prescribed method and sub-sections (2) and (3) of Section 14A remained unworkable. 2.24. So far as, as to how Section 14A to be worked for the period prior to the introduction of Rule 8D, is concerned. Sub-section (2) of section 14A, as we have seen, stipulates that the Assessing Officer shall determine the amount of expenditure incurred in relation to income which does not form part of the total income "in accordance with such method as may be prescribed". Of course, this determination can only be undertaken if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. This part of section 14A(2) which explicitly requires the fulfillment of a condition precedent is a....
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.... income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, first of all it is to be mentioned that the assessment year involved before us is 2006-07, therefore, in view of the decision from Hon'ble jurisdictional High Court in Godrej & Boyce Mfg. Ltd. (Supra), Rule-8D of the rules is not applicable to the case of the assessee. The issue has been examined by Hon'ble High Court/Courts and also by Hon'ble Apex Court. The Hon'ble Bombay High Court in Reliance Utilities & Power Ltd. 313 ITR 340(Bom.), Hero Cycles Ltd. 323 ITR 518 (P & H) has thrown light on the issue. The Ld. Commissioner of Income Tax (Appeal) has observed that the assessee has showed capital and reserved of Rs. 4.95 crores and it appears that the funds deployed for acquisition of fixed assets (Rs. 29 lakh), granting loan and advanced to sister concern (Rs.4.22 crores) and the assessee fully paid its secured and unsecured loans during the period and incurred interest expenses of Rs. 24,41,879/-. It has been further observed that the assessee has not shown any interest income. The Ld. Commissioner of....
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....shareholders funds have been utilised for investments. The argument has to be rejected on this count also. Apart from that both in the order of the CIT(A) as also the Tribunal, a clear finding is recorded that the assessee had interest-free funds of its own which had been generated in the course of the year commencing from 1st April, 1999. Apart from that in terms of the balance sheet there was a further availability of Rs. 398.19 crores including Rs. 180 crores of share capital. In this context, the finding of fact recorded by CIT(A) and Tribunal as to availability of interest-free funds really cannot be faulted. If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. In this case this presumption is established considering the finding of fact both by the CIT(A) and Tribunal-Woolcombers of India Ltd. vs. CIT (1981) 23 CTR (Cal) 204 : (1982) 134 ITR 219 (Cal) and East India Pharmaceutical Works Ltd. vs. CIT (1997) 139 CTR (SC) 372 : (1997) 224 ITR 627 (SC) relied on." 2.26. Likewise, Hon'ble jurisdictiona....
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....r any other Authority in the State of Maharashtra to disregard it while considering a like issue. In case HIGH Court are wrong, the aggrieved party can certainly take it up to the Supreme Court and have it set aside and / or corrected or where the same issue arises in a subsequent case the issue may be re urged before HIGH Court to impress upon it that the decision rendered earlier, requires reconsideration. It is not open to the Tribunal to sit in appeal from the orders of High Court and not follow it. In case the doctrine of precedent is not strictly followed there would complete confusion and uncertainty. The victim of such arbitrary action would be the Rule of law of which we as the Indian State are so justifiably proud. (Para23) It is in the above circumstances that High Court are of the view that High Court have to exercise our powers under Article 227 of the Constitution of India. This is in view of the manner in which the impugned order of the Tribunal has chosen to disregard and/or circumvent the binding decision of this Court in respect of the same assessee for an earlier assessment year. This is a clear case of judicial indiscipline and creating confusion in respec....